Predicting Health-Care Employment

Published projections of health-care employment into the next
century are useful for companies in the industry. But they can't
take into account the greatest influence on the market--the fickle
nature of government health-care policies.

Few industries in the U.S. are as profoundly affected by
government policy as health care.

A breakfast-cereal company can plan for the future by evaluating
the types of cereal preferred by different consumer groups, and how
those groups may grow and change. Government regulations on
trucking or agricultural subsidies affecting the price of sugar may
play a role in future sales. But customers are the greatest
determinants.

Health care is a different matter altogether. The demand for
health-care services is determined by government ideas, not direct
consumer demand. That's because government spending accounts for 47
percent of all health-care expenditures. Companies that are in the
business of providing health-care services, education, or supplies
to providers have a tough time projecting their futures, since
politics, rather than market forces, are at work.

While free-market capitalism is the prevailing ideology for
American commerce, the health sector has some rare qualities that
make most economists concede that government intervention is
necessary. This might seem strange. If private practitioners are
able to provide health services to the entire U.S. population, why
should government interfere at all?

The reason is that not everyone can afford the health care they
vitally need. Economists call this condition market failure. Market
failure is defined as the inability of consumers to meet market
prices for a service they both want and need. In our country,
health care is in short supply in many underserved markets. And
where services are plentiful, multiple forces keep prices beyond
the reach of most consumers. In the rule book of modern-day
economics, governments are justified in interfering with the
economy when market failure occurs.

The necessity of government intervention in the U.S. health-care
system is agreed upon by both politicians and ordinary citizens,
since few think medical care should be available only to the
wealthy. Yet there is no consensus on the appropriate level of
intervention. Witness the failure of the Clinton administration's
1994 initiative to restructure the entire system. The public lost
its zeal for change then. But in the future, it is likely that
reforms will occur, since maintaining the status quo threatens to
bankrupt the government. For now, reform will probably fall short
of government-mandated universal coverage. But public health-care
programs are unlikely to be eliminated entirely.

The Meaning of Government Dollars The recent history of
government spending on health care shows how important these
dollars are to the industry and its employment. Government spending
often determines how many consumers can afford health services, and
hence, how many jobs are created. Winners and losers--whether
individuals or corporations--are made with every policy change. The
magnitude is enormous, since health care comprised 14 percent of
the Gross Domestic Product in 1996.

Between 1993 and 1996, government health expenditures increased
steadily from about 10 percent to 14 percent a year, reaching a
high of $483 billion in 1996, according to the Health Care
Financing Administration. Total employment in the health sector
increased 3 percent annually over the period, to 9.5 million
workers. Government spending equaled $51,016 for every health-care
job. When private expenditures are included, per-job spending was
$109,312.

Not all fields in health care enjoyed employment gains from the
rise in government spending. The real beneficiaries were home
health-care services (up 42 percent between 1993 and 1996), and
three distant runners-up: officesand clinics of physicians (11
percent), dentists (10 percent), and nursing homes (9 percent).
Employment in private hospitals grew much more slowly than other
sectors, at 1 percent between 1993 and 1996.

Future decreases in government health-care spending would likely
be met by some increases in the private spending. For instance, if
Medicare was curtailed, individuals who could afford certain
services or private coverage would spend more. But their spending
couldn't begin to make up for the loss of government dollars. If
less government money were spent on health care, employment would
fall. Conversely, more money spent means more jobs.

Looking to the Future There's no crystal ball for predicting
whether government spending will change in the future. However, a
model developed for the Department of Health and Human Services can
assist health-care providers, educators, and suppliers in analyzing
the possible effects of policy changes on primary health-care
employment. The model, Integrated Requirements for Physician
Assistants, Nurse Practitioners, Certified Nurse Midwives, and
Physicians (MDs and DOs), was developed for the department's Office
of Research and Planning by Vector Research, Inc. of Ann Arbor,
Michigan.

The model assumes a loose set of parameters for the future of
primary health-care employment, but individual users may determine
most variables to forecast employment to 2005 or 2020. In contrast,
employment projections from the Bureau of Labor Statistics are
based on an established set of assumptions.

To create custom models of future employment, users need
knowledge of current employment patterns and insurance-coverage
rates by type of insurance. However, the model comes with six
preprogrammed scenarios, all of which can be modified slightly or
completely, based on user preference. While the model's focus only
on primary health care does leave out a large portion of total
health-care professionals, it is a very useful starting point in
understanding future change.

Here are the Six Prepared Scenarios:

Status Quo: Population growth is the only change assumed.
Government and private spending are unchanged.

Baseline Insurance Projections: Assumes population growth and
changes the rates of insurance coverage for the urban and rural
populations. This is the most likely scenario, according to the
Department of Health and Human Services. Government holds to the
status quo, and the free market determines changes in coverage
rates.

High Managed Care: Assumes an increasing percent of people will
be enrolled in managed-care insurance programs. This may result
from new laws requiring managed care for those covered by public
insurance, or from increased participation in managed care by the
privately insured population.

Universal Coverage: Similar to the High Managed Care scenario.
This plan assumes a government mandate will make insurance
coverage, particularly fee-for-service programs, available to
everyone.

Equal Access Under Universal Care: Takes the Universal Coverage
scenario a step further by assuming government will become more
active in providing access to health-care services to underserved
populations. This scenario represents significant government
intervention in the health market, since establishing services in
rural areas, for instance, is uneconomical for private
providers.

High Physician Assistant, Nurse Practitioner, and Certified
Nurse Midwife Use: Starting from the Baseline Insurance Projections
and incorporating a broad range of possibilities for change,
assumes a higher percent of patients attended only by these types
of practitioners, rather than the traditional physician with some
type of assistant. A wide variety of public and private policy
changes might result in this scenario.

Forecasting to the year 2005, we find that each scenario means
often dramatic changes in the number of primary health-care
professionals employed in the U.S. Rates of growth are similar for
the Status Quo, Baseline Insurance, and High Managed Care
scenarios. For the purpose of contemplating the future, these three
comprise one "thinking block," in that they have strong
similarities. Universal Coverage and Equal Access Under Universal
Coverage are another. They share employment growth projections,
although the number of workers is expected to grow much faster than
for the previous three scenarios.

The last scenario, High Nurse Practitioner/Physician
Assistant/Nurse Practitioner Use represents the greatest potential
change in employment, making it an outlier to the previous five.
Yet current trends in the growing use of these non-physicians to
provide basic services suggest this scenario is within the realm of
the possible.

Under this scenario, employment for these three types of workers
skyrockets, while the need for physicians declines. Growing demand
would probably lead to higher salaries for these professionals,
until new training programs created a greater supply of them.
Medical schools would be faced with declining enrollment, for
primary-care physicians would have a harder time finding
employment, and would-be doctors would be drawn to other
professions.

We also created our own scenario for the future of health-care
employment. What if private insurance ended as we knew it? Sound
impossible? So did the oil crises of the early 1970s and the long
duration of World War I. Thinking about what seems impossible can
prepare companies to survive in unstable environments and react
quickly to an unexpected crisis. This last scenario is called No
Private Insurance. It represents the end of private insurance
coverage, with government accepting only limited growth in its own
insurance programs. In other words, everyone who doesn't qualify
for a government program would have to pay for health care out of
their own pockets.

In the No Private Insurance scenario, there would be drastic
declines in the need for physicians, physician assistants, and
certified nurse midwives. The need for nurse practitioners would
increase somewhat. The reason, again, would be market failure in
the health-care economy. Since few people can pay for all the
health care they require without help from insurance, fewer primary
health-care professionals would be needed. If government failed to
increase its insurance levels to cover more people, the employment
situation would be bleak indeed.

If you want to skip the computer model in favor of a calculator,
predicting the possible effect of reductions in government
health-care spending can also be explored by studying expenditures.
Since any change in government spending means shock waves
throughout the industry, this is a valid approach. In 1994, the
federal government paid for 33.7 percent of all personal
health-care expenditures, or $280 billion. If even 1 percent came
off this figure, the result would be a $2.8 billion reduction in
personal health-care expenditures. That translates to 28,822 fewer
jobs in the personal health-care market. On the other hand, a 1
percent increase would have the opposite effect--28,822 new
health-care jobs would be created based on an additional $2.8
billion in spending.

Whether by computer model, calculator, or simply daydreaming
about the future, working to understand how government policy may
affect your health-care-related business is a solid strategy. The
more you know, the better you will be able to react swiftly to
swing change to your advantage.

Taking it Further For more information on government health-care
financing, contact the Health Care Financing Administration, 7500
Security Boulevard, Baltimore, MD 21244; telephone (410) 786-3000,
or visit its web page at http://www.hcfa.gov. For more information
on the Integrated Requirements for PAs, NPs, CNMs and Physicians
model, contact Edward S. Sekscenski, health economist at the Office
of Research and Planning, Department of Health and Human Services,
5600 Fishers Lane, Room 8-55, Rockville, MD 20857; telephone (301)
443-6633.